What a small country’s successes and mistakes can teach us about emission pricing

By Suzi Kerr, Chief Economist at Environmental Defense Fund. First published at EDF's blog.

I’m from Aotearoa, New Zealand, and I really love its land and people, but I am fully aware that from a global perspective it appears pretty insignificant – that’s actually one of its charms.  But being small doesn’t mean you can’t make big contributions including toward stabilizing the climate. This recently published article highlights some lessons New Zealand’s experience with emissions trading can offer other Emissions Trading System (ETS) designers at a time when effective climate action is ever more urgent.

Talking intensively to ETS practitioners and experts around the globe about their diverse choices and the reasons why they made them has made me acutely aware of the need to tailor every ETS to local conditions.  In a complex, heterogeneous world facing an existential crisis, diversity in climate policy design makes us stronger and frankly, improves the odds that the young people we love will live in a world where they can thrive.

Social Cost of Carbon: final big questions (with help from the birds)

Photo by Francesco Veronesi on Flickr cc by 2.0

by Bronwyn Bruce-Brand, Research Analyst at Motu Economic and Public Policy Research

This is the final in a series of three posts answering key questions about the Social Cost of Carbon (SCC). To help keep you interested, I have inserted some egg-cellent ideas about how we might get SCC to soar.

Ma ngā huruhuru ka rere te manu: It is the feathers that enable the bird to fly.

Social Cost of Carbon: two further questions (with more help from New Zealand’s native wildlife)

Photo by Department of Conservation on Flickr cc by 2.0

by Bronwyn Bruce-Brand, Research Analyst at Motu Economic and Public Policy Research

This is post two in a series of three posts answering key questions about the Social Cost of Carbon (SCC). In the interests of getting you to the end of this article, I have included some bird breaks (hopefully these won't get too squawkward).

Social Cost of Carbon: Two of six big questions (with a little help from New Zealand’s native wildlife)

by Bronwyn Bruce-Brand, Research Analyst at Motu Economic and Public Policy Research

Nobel Prize Laureate and environmental economist William Nordhaus calls the social cost of carbon (SCC) “the most important single economic concept in the economics of climate change” and it’s a requirement for all US federal environmental regulation analysis.1 So, what is the SCC and how does it work?

Photo by southstar on flickr cc by 2.0

This series of posts answers the first two in a series of six key questions about the SCC with the help of some of New Zealand’s most beautiful native birdlife. As an economist who works with climate change policy, I still find the technicalities of the SCC and how it fits with regulation, environmental science and predictions of the future fly over my head sometimes. So, in the interests of getting you to the end of this article without rage-quitting or falling asleep, I have included some bird breaks, with fun facts and a few puns about some of our most loveable feathery friends. Other than that, I’ll just wing it (not sorry).

What’s driving business to understand and act on climate change issues now, and what will going forward?

by Catherine Leining, Public Policy Fellow Motu Research
This has been adapted from a keynote address for the 2019 Climate Change & Business Conference

Motu is an independent non-profit research organization. The businesses I work with are the early movers, and they are very well informed and engaged. My impression is that the early movers see climate change as a significant opportunity, a significant threat, or a corporate social responsibility obligation.  I suspect that for many businesses in the middle, decarbonisation is a future problem or someone else’s problem.     

I see three key drivers that will change how businesses will respond to climate change in the future.

The first driver is emission pricing. The current prices in the NZ ETS have to rise significantly to support New Zealand’s Paris target and long-term decarbonisation. Modelling for the Productivity Commission suggested prices ranging from $30-80 by 2030 and $75-250 by 2050. We are still in a policy vacuum about what the emission price pathway will look like and what additional regulations will apply. In the meantime, businesses need to future-proof their investments by factoring in a high and rising shadow emission price or risk stranding their assets. Frankly, that applies to central and local government too.

The second driver is that the social license to emit is rapidly expiring. We are seeing unprecedented demonstrations now; fast forward a decade when we have hit 1.5oC and are competing for entitlements to an exhausted global carbon budget. Pressure from investors and consumers may be more influential in the near term than government targets. To maintain their social license, businesses are going to need to show genuine commitment, transparency and accountability for action to reduce emissions.

The third driver is that climate change creates enormous business opportunities. In our beautiful welcome, we heard about the winds of change. We can harness those winds – or be blown away by them. We need to create the kind of business targets that will unlock innovation and harness the winds. Right now, a lot of business targets involve drawing a boundary, reducing internal emissions by a percentage, and planting trees. We need a mindset shift for targets from constraint to transformer, cost to investment, and self to system. We need targets for collectively changing whole supply chains and financing models, building new partnerships, educating consumers, creating new markets, and replacing technology and infrastructure with unprecedented speed. The biggest business opportunities lie in being not just carbon neutral, but carbon transformational.

My final comment is that policy uncertainty is lethal to long-term low-emission investment.  Reaching strong political consensus on the way ahead would empower the producers, investors, and consumers who will make change happen.

Zero Carbon Bill - oral submission from Catherine Leining and John McDermott

John McDermott is the Executive Director at Motu Economic and Public Policy Research in Wellington, and Catherine Leining is a Policy Fellow at Motu. This is the oral submission to the Environment Select Committee they made on the Zero Carbon Bill in their individual capacities.  

To build a successful low-emission economy, we need continuity of sound, evidence-based policy across elections. Today we will highlight three technical areas for improving this bill in line with New Zealand’s commitments under the Paris Agreement, and conclude with comments about target ambition. 

How emissions trading schemes work and they can help us shift to a zero carbon future

by Catherine Leining, Policy Fellow, Motu Economic and Public Policy Research

Would you please explain how the New Zealand Emissions Trading Scheme (ETS) works in simple terms? Who pays and where does the money go?

Every tonne of emissions causes damages and a cost to society. In traditional market transactions, these costs are ignored. Putting a price on emissions forces us to face at least some of the cost of the emissions associated with what we produce and consume, and it influences us to choose lower-emission options.

An emissions trading scheme (ETS) is a tool that puts a quantity limit and a price on emissions. Its “currency” is emission units issued by the government. Each unit is like a voucher that allows the holder to emit one tonne of greenhouse gases.

The New Zealand Emissions Trading Scheme (NZ ETS) is the government’s main tool to meet our target under the Paris Agreement. In a typical ETS, the government caps the number of units in line with its emissions target and the trading market sets the corresponding emission price.

Integrating climate with economy needs to extend beyond government

A reaction to the Wellbeing Budget of May 2019 by Catherine Leining, Policy Fellow at Motu Economic and Public Policy Research

On 30 May 2019, the New Zealand government released its first “Wellbeing Budget.” Under this framework, new funding for climate change mitigation has been integrated with economic development. Adaptation gets only a brief nod. Is this budget allocation adequate to meet the climate change challenge before us? No – but could it ever be?

One key theme is research for a low-emission future. Examples are a National New-Energy Development Centre in Taranaki ($27m), an Advanced Energy Technology Platform ($20m), a Bioresource Processing Alliance and Product Accelerator ($18m), and an Agricultural Climate Change Research Platform ($3.2m). MBIE will advance policy on the future of work and “just transition” issues.

Commentary on Tranche Two Decisions on the New Zealand Emissions Trading Scheme

by Catherine Leining, Policy Fellow, Motu Economic and Public Policy Research. 

Reforming New Zealand’s climate change legislation is a complex tango. Where the Zero Carbon Amendment Bill leads, NZ ETS amendments must follow. The government’s latest NZ ETS policy decisions will help ensure future emission prices rise in step with our targets. Check out our “Top Ten” list of alterations to watch for as we outfit the NZ ETS for the important job ahead or read on for comments on yesterday's announcements.

Commentary on introduction of the Zero Carbon Amendment Bill

by Catherine Leining, Policy Fellow at Motu Economic and Public Policy Research

The Government is heeding the stark warning in the IPCC’s Special Report on 1.5oC and putting New Zealand on an ambitious pathway toward net zero emissions of long-lived GHGs and substantial reductions in methane from agriculture and waste by 2050. The Zero Carbon Amendment Bill may finally light the fire under NZ mitigation action. It breaks important new ground in 6 ways.

PCE report on “Farms, forests and fossil fuels”: One lump or two?

by Catherine Leining, Policy Fellow, Motu Economic and Public Policy Research

On 26 March 2019, the Parliamentary Commissioner for the Environment (PCE) released a report on “Farms, forests and fossil fuels: The next great landscape transformation?” It looks at the challenges in decarbonising New Zealand’s economy and asks whether a fundamental restructure of the New Zealand Emissions Trading Scheme (NZ ETS) will be needed. 

The PCE usefully reinforces three important points: targets and policies should reflect differences across greenhouse gases (GHGs), fossil carbon dioxide (CO2) emissions need to reach zero during this century, and management of New Zealand’s land sector would be enhanced by a landscape approach that integrates climate change and other considerations.

Greenhouse gas recommendations from the Government’s Tax Working Group

by Catherine Leining, Policy Fellow at Motu Economic and Public Policy Research

On 21 February 2019, the Government’s Tax Working Group (TWG) issued a report with advice on using environmental taxes to manage greenhouse gas emissions. It recommended retaining the New Zealand Emissions Trading Scheme (NZ ETS) with reforms to provide greater guidance on price, generate revenue through auctioning, and enable periodic review. It also recommended extending emission pricing to biological emissions from the agriculture sector, whether through the NZ ETS or a complementary system. It suggested those changes can help drive behaviour change to reduce emissions, generate revenue supporting the transition to a more sustainable economy, and, in the longer term, broaden the overall tax base.

Zero Carbon Bill Submission

by Catherine Leining and Suzi Kerr.
The New Zealand government has recently consulted on its proposal for a Zero Carbon Bill. This would:

• set a new and more ambitious 2050 greenhouse gas emission reduction target
• establish interim five-year “emissions budgets” consistent with meeting those targets
• require the government to issue plans for achieving its emissions budgets
• require preparation of a national climate change risk assessment and national adaptation plan
• set up a new independent Climate Change Commission to advise the government and monitor its progress.

Our full submission on the Zero Caron Bill is available here. In this blog we highlight five key opportunities to improve the government’s proposal.

E-Mission Possible roundtable summaries

by Catherine Leining and Ceridwyn Roberts, Motu Economic and Public Policy Research

The road to a net-zero future is paved with challenging questions for which there are no definitive answers – just choices to be made under uncertainty and consequences to be faced under risk. In order to shed new light on particularly thorny questions for NZ's low-emission transition Motu, Productivity Commission, the Institute for Governance and Policy Studies at Victoria University of Wellington, and the Environmental Defence Society convened a series of roundtables.

We have now completed the summaries from all four E-Mission Possible Roundtables.  We received very positive feedback on all of the roundtables in the series, and want to thank everyone who contributed to their design, funding and implementation.

Budget 2018 and climate change

by Catherine Leining, Policy Fellow at Motu Research

When it comes to the climate change portfolio, Budget 2018 feels like the calm before the storm. It focuses more on policy processes for future action than catalysing action now. Budget allocations will support development of international carbon markets (key to helping New Zealand meet its 2030 target under the Paris Agreement), the Zero Carbon Act, the Climate Change Commission, and amendments to the New Zealand Emissions Trading Scheme (NZ ETS).

Designing a Climate Commission that works for New Zealand

Catherine Leining from Motu Economic and Public Policy discusses today's release of the Zero Carbon Act Report from the Parliamentary Commissioner for the Environment.

Climate change has been described by Lord Nicholas Stern as the greatest market failure the world has ever seen, but it could just as validly be described as the greatest governance failure. Short-term election cycles and under-resourced departments are poorly suited for managing risks that accumulate over generations and policies imposing near-term, local costs in return for long-term, globally distributed benefits.

New Zealand’s Parliamentary Commissioner for the Environment (PCE) has released a report that addresses part of the solution: legislating emission reduction targets and establishing an independent Climate Commission. These are both components of the government’s Zero Carbon Act which is under development.

Decoupling New Zealand’s economic growth from GHG emissions

By Catherine Leining, Policy Fellow at Motu Economic and Public Policy Research.

Global progress to avoid the worst impacts of climate change depends on our ability to separate economic growth and wellbeing from greenhouse gas (GHG) emissions. They cannot continue to increase in lock step. One indicator of progress is our GHG intensity: tonnes of emissions per unit of GDP.

StatsNZ’s first report on New Zealand’s Environmental and Economic Accounts finds evidence this decoupling of our economic growth and emissions is occurring. Over 1990-2015, New Zealand’s economy grew by an average of 3.1% per year while GHG emissions increased 0.9% per year. This means that, over that 25 year period, the economy’s GHG intensity declined by an average of 2.2% per year. That shows progress, but it is not enough.

Approaching a Low-Emission Future: Emission Trading Scheme vs. Command-and-Control Approaches in New Zealand

By Rosemary Irving and Rosa Hill, University of Canterbury 

Rosie and Rosa are undergraduate students. They won the Motu Environment Economics Essay prize in 2017. You can find out more information about Motu's proposal for the Emissions Trading Scheme (ETS) and our wider ETS work.  

Rosie Irving and Rosa Hill

Achieving emission targets can be accomplished through numerous policies; however, some of these policies are more efficient and cost effective than others. Here in New Zealand, we currently run an ETS. Economic rationale supports an ETS policy as being more efficient as opposed to a command-and-control approach for a number of reasons which we will explore in depth below. 

Economic Rationale: How an Emissions Trading Scheme Works

Figure 1: Command-and-control (equal
misery) approach  

 Figure 2: Emissions trading scheme
approach  

The NZ ETS: Better equipped for the journey – but still unsure of the path

by Catherine Leining, Policy Fellow at Motu Economic and Public Policy Research

Every tramper knows the value of good gear. A well-designed backpack that distributes the weight to the areas of greatest strength can transform the experience of a challenging bushwalk.  

The changes to the New Zealand Emissions Trading Scheme (NZ ETS) announced by the government last month will usefully equip the system for the journey to net-zero domestic emissions. Like a good backpack, they offer a sturdy framework for distributing mitigation responsibilities and costs across the economy. However, we still do not know what route lies ahead, what pace we will set, what provisions will sustain our efforts, and who will carry the heaviest weight.

The government has not altered our path through 2020. What longer-term changes can we expect to see in the NZ ETS?

Vast majority of New Zealanders want action and leadership on climate change.

Guest post from Pure Advantage first posted here.

Following the US announcement that they would withdraw from the Paris Climate Change Agreement, we asked if New Zealand should follow suit. A whopping of 92 percent of Kiwis disagreed, not wanting our country to follow President Trump’s decision. New Zealanders are even more united in their commitment to the Paris Accord than Australians who show 87 percent support.

Last week, Pure Advantage released the results of their Climate Survey which talked to 1000 New Zealanders about their perspectives on New Zealand’s climate policy position. The results show that a vast proportion of New Zealanders have the appetite required to effect change and reduce our greenhouse gas emissions.